business models, external environment and performance of
TRANSCRIPT
BUSINESS MODELS, EXTERNAL ENVIRONMENT AND
PERFORMANCE OF SAFARICOM LIMITED IN KENYA
EVANS KWAMBAI
A RESEARCH PROJECT SUBMITTED IN PARTIAL
FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF
THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION,
SCHOOL OF BUSINESS, UNIVERSITY OF NAIROBI.
2019
i
DECLARATION
I, Evans Kwambai hereby declare that this research project entitled Business Models,
External Environment and Performance of Safaricom Limited in Kenya is my original
work and has never been presented for academic award like a certificate, diploma or
degree in any university, college or institution of higher learning.
Signature: ..................................................... Date: ...................................................
EVANS KWAMBAI
REG NO: D61/P/7902/2001
MBA PROGRAMME
SUPERVISOR'S APPROVAL
This research project by Evans Kwambai entitled Business Models, External
Environment and Performance of Safaricom Limited in Kenya has been developed
and submitted for examination with my guidance and approval as the university
supervisor.
Signature: ..................................................... Date: ...................................................
DR. JAMES GATHUNGU, PHD, CPS (K)
SENIOR LECTURER,
DEPARTMENT OF BUSINESS ADMINISTRATION,
UNIVERSITY OF NAIROBI.
ii
DEDICATION
This research project is dedicated to my parents, my wife and my two children. Thank
you for your unwavering patience and moral support. May God continue to bless you
abundantly.
iii
ACKNOWLEDGEMENT
I would like to thank the Almighty God for enabling me to undertake and complete
this research project. I would also like to express my sincere gratitude to my
Supervisor Dr. James Gathungu for his guidance throughout the course of this project.
Lastly, I would like to thank all interviewees for taking time off their busy schedules
and for their insights. May God Bless you all.
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TABLE OF CONTENTS
DECLARATION........................................................................................................... i
DEDICATION.............................................................................................................. ii
ACKNOWLEDGEMENT ......................................................................................... iii
LIST OF TABLES ..................................................................................................... vii
LIST OF FIGURES ................................................................................................. viii
LIST OF APPENDICES ............................................................................................ ix
LIST OF ABBREVIATIONS ..................................................................................... x
ABSTRACT ................................................................................................................. xi
CHAPTER ONE: 1NTRODUCTION........................................................................ 1
1.1 Background of the Study ..................................................................................... 1
1.1.1 Business Models ............................................................................................... 2
1.1.2 External Environment ................................................................................... 3
1.1.3 Organizational Performance ......................................................................... 5
1.1.4 Mobile Telecommunication Industry in Kenya ............................................ 6
1.1.5 Safaricom Kenya Limited ............................................................................. 6
1.2 Research Problem ................................................................................................ 7
1.3 Research Objective .............................................................................................. 9
1.4 Value of the Study ............................................................................................. 10
CHAPTER TWO: LITERATURE REVIEW ......................................................... 11
2.1 Introduction ........................................................................................................ 11
2.2 Theoretical Foundation ...................................................................................... 11
2.2.1 Dynamic Capability Theory ........................................................................ 11
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2.2.2 Resource Based Theory .............................................................................. 12
2.2.3 Contingency Theory.................................................................................... 13
2.3 Business Models and Firm Performance ........................................................... 14
2.4 Business Models, External Environment and Performance ............................... 16
2.5 Summary of Empirical Studies and Knowledge Gaps ....................................... 17
2.6 Conceptual Framework ...................................................................................... 19
CHAPTER THREE: RESEARCH METHODOLOGY ........................................ 20
3.1 Introduction ........................................................................................................ 20
3.2 Research Design................................................................................................. 20
3.3 Data Collection .................................................................................................. 20
3.4 Data Analysis ..................................................................................................... 21
CHAPTER FOUR: DATA ANALYSIS, RESULTS AND DISCUSSION ........... 22
4.1 Introduction ........................................................................................................ 22
4.2 Response Rate .................................................................................................... 22
4.3.1 Business Models Adopted by Safaricom .................................................... 22
4.3.2 External Environment Consideration .......................................................... 24
4.3.3 Effect of Business Model, External environment on the Performance of
Safaricom ............................................................................................................. 25
4.4 Discussion of the Results ................................................................................... 26
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION 29
5.1 Introduction ........................................................................................................ 29
5.2 Summary ............................................................................................................ 29
5.3 Conclusion ......................................................................................................... 30
5.4 Recommendations .............................................................................................. 31
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5.5 Limitations of the Study..................................................................................... 32
5.6 Areas Suggested for Further Research ............................................................... 32
REFERENCES ........................................................................................................... 33
APPENDIXES ............................................................................................................ 36
Appendix I: Letter of Introduction ........................................................................... 36
Appendix II: Interview Guide ................................................................................. 37
Appendix III: Introduction letter for data collection, Dean School of Business,
University of Nairobi. .............................................................................................. 41
Appendix IV: Safaricom Kenya Limited Organizational Chart ............................. 42
vii
LIST OF TABLES
Table 2.1: Summary of Empirical Studies and Research Gaps……...................... 18
viii
LIST OF FIGURES
Figure 2.1: Conceptual Model ………………………….…………………......19
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LIST OF APPENDICES
Appendix I: Letter of Introduction……………………………………………..36
Appendix II: Interview Guide…………………………………………………37
Appendix III: Introduction letter - University of Nairobi School of Business...41
Appendix IV: Safaricom Organizational Structure……………………………42
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LIST OF ABBREVIATIONS
2G - 2nd Generation
4G - 4th Generation
CA - Communications Authority
CCK - Communications Commission of Kenya
DCT - Dynamic Capability Theory
HR - Human Resource
KPA - Kenya Ports Authority
PESTEL - Political Economic Social Technological Environmental Legal
RBV - Resource Based View
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ABSTRACT
The main objective of this research project was to investigate the relationship between
business models, external environment and performance of Safaricom limited in
Kenya. As the level of global competition increases and profits dissipate, business
organizations will seek to gain competitive advantage by breaking recipes of
industries that were already established while engaging in innovation models that
facilitate effective running of business activities. The predictor variables of the study
was Safaricom business models that comprised of core internal competencies, revenue
drivers and pricing volume and margins market differentiation and the moderating
variable was the external environment. The study adopted a case study research
design. The study used primary data. The researcher utilized an interview guide as the
main data collection instrument. Data was collected through a face to face interview
with the interviewees. The findings shows that with regard to customer identification,
the process is through market analysis, demand of products, other customer request,
mass market demand for services and market research. In regard to the value chain
and linkages business model approach, Safaricom limited sets up the right network
infrastructure e.g. Fibre optic network, Base Transceiver Stations and builds products
and services on top of these infrastructure. The value chain and linkages business
model approach take through online shop, channel partners (i.e. agents), Safaricom
shops etc and work with distributors to sell the products countrywide. The core
internal competencies in Safaricom limited were very good engineers, HR,
technology, logistics business development teams and the company had qualified staff
with technical & sales competence. To avoid harsh economic conditions in the
country, the study found that adopting different business strategies based on
forecasted economic conditions on yearly basis, price changes, tax regime and cost
reductions can enhance performance of the company. In relation to how Safaricom
scans the environment and respond to specific opportunities and threats to come up
with appropriate business model, the results shows that using market research,
industry surveys, customer feedbacks, engagements on an ongoing process has been
adopted. The study recommends that resources should be devoted generously towards
market research and appropriate customer database should be established to capture
the statistics of customer demands so that the company can have the trend of services
that are highly demanded and consequently enhance value creation in the respective
service line. In addition, with regard to rapid technological changes and market
turbulence, the study perhaps recommend that market research, enhanced customer
feedback path and effective research and development should be established in the
company to enhance customer satisfaction and in the long run, performance of the
company will improve significantly.
1
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
As the level of global competition increases and profits dissipate, business
organizations will seek to gain competitive advantage by breaking recipes of
industries that were already established while engaging in innovation models that
facilitates effective running of business activities. The global competition has been
manifested by increased customer demands and availability of substitute products that
might be of higher quality and more affordable, a situation that forces companies to
develop alternative business strategies that will lead to an increase in the firm’s
performance (Brannon & Wiklund, 2016). For effective strategy to compete in such
an uncertain business environment there is need for not only an effective strategy, but
also appropriate internal processes that facilitate the actualization of the strategies. Di
Valentin, Burkhart and Vanderhaeghen (2012) therefore assert that business models
act as an link between a strategy of company and its business strategies in particular.
Consequently, adoption of appropriate business model will act as a catalyst to the
improved organizational performance. While the focus of an organizational strategy is
on the techniques that a firm implements in order to overcome competitors, business
models will facilitate coordination of business activities and creation of value
(Casadesus-Masanell, & Ricart, 2010).
This research was anchored on Dynamic Capability Theory (Teece & Pisano,1994)
and supported by the Resource –Based View (Barney, 1991) and the Contingency
Theory (Otley, 1980). The dynamic capability (DC) theory asserts that the
performance of an organization is determined by both internal and external resources
that need to be integrated and reconfigured in order to achieve improved sustained
performance. The theory states that company’s capability differences are based on the
position of an asset in that its current capabilities determine its future position to
changing its operating status. The resource-based theory (Barney, 1991) argues that
performance sustainability is a source of a company's ability to hold recoverable, rare,
unique and sustainable resources. The business model of the organization takes into
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consideration the complementary dimension of internal resources to explain how they
can lead a firm into obtaining competitive advantage. On the other hand, the
Contingency theory (Fileder 1964) suggests that the management, environment and
organizational factors in which a firm operates, all contribute to determining a
company's performance and strategic direction. The Contingency Theory therefore
suggests that both environmental and organisational variables restrict the capacity of
executives to impact the organisational performance.
The telecommunication industry in Kenya has seen unprecedented growth over the
last two decades largely driven by changes in the country’s regulatory environment,
resulting in increased connectivity, affordable services and innovation headlined by
the award winning mobile money transfer service MPESA. Over this period, the
industry has seen new entrants hence resulting to a highly competitive environment
and in effect, other companies have been forced to either close shop, relocate, merge
and others acquired by the stronger players in the market. Airtel Kenya has changed
hands several times starting off as Kencell in 2000 to Celtel in 2005, then to Zain in
2008 before finally being acquired by India’s Bharti Airtel group in 2010 to operate
under the brand name Airtel. Econet wireless came into the market in 2005 operating
under the brand name yuMobile and ended up selling its infrastructure and subscribers
in 2014 to Safaricom and Airtel respectively. The industry has also saw growth in
broadband internet connectivity though satellite networks and thereafter, overtaken by
fibre optic networks which resulted in further market reorganization that saw satellite
services firms close down. With such high level of competitive environment,
telecommunication service providers are forced to establish appropriate business
models and logics to guide them in the prevailing market environment.
1.1.1 Business Models
Amit and Zott (2012) describe a business model as an embedded and interdependent
business system that describes how an organization is conducting business with its
consumers, suppliers, and sellers. Al-Debei and Avison (2010) provided a series of
definitions of business models that describe a corporate business model as an abstract
form of all of the core interlinked structures, partnerships and financial arrangements
currently and in the future designed and developed by the company as well as all the
main goods and/or services. Brannon and Wiklund (2016) further define a business
3
model, following a definition by McKinley, Latham and Braun (2014) that relates to a
significant disparity between the principal structures of goods, functionality or
production processes of a company. A business model is therefore a set of linked
operations which intertwine as a process that an organization performs to meet the
needs of a client by generating value for its consumers, generating revenue for the
company.
A company's competitiveness could be related to previous creative activities, the
acceptance of technologies from others and the capacity to develop a fresh mix of
activities from the existing mixture (Roberts & Amit, 2003). Such new combinations
would shape imaginative models of operation, which would disrupt the competitive
environment and create a new product diversity. The essence of the business model is
how an organization generates income or receives profits. There are several resources
that constitute an organization business model. Osterwalder and Pigneur (2010) assert
that in addition to strategy, material and immaterial resources are important
components for a firm business model in order to achieve improved performance.
Hence as Morris, Shirokova and Shatalov (2013) highlight, a firm’s business model
should have structures and process for value addition, structures for capturing profits
and processes for achieving growth. Value creation and capture need to be
implemented within the business model that encompass other players as suppliers,
partners and distribution channels that form an organization value chain. The four
dimensions of a business model include customer engagement, customer
identification, value delivery and money or revenue flows, as suggested by Baden
Fuller and Haefliger (2013).
1.1.2 External Environment
In order to register a performance improvement, an organization should not only look
at the internal operations but also the environment for more efficient operational
technologies. External scanning should be done with a view to improving existing
products and procedures in the manufacturing process that other competing firms in
the market are offering (Teece, Pisano & Shuen, 1997). The need for an organization
to be cognizant with the happenings in its operating environment is further supported
by Porter’s work who suggests that organizations and countries should upgrade and
broaden their internal benefits so as to extend and sustain competitive advantages. As
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Barney (1991) states, companies acquire a sustainable competitive advantage through
the implementation of policies that leverage their internal strengths by reacting to
economic possibilities, enhancing internal weaknesses and eliminating external risks.
This point was reinforced by Machuki and Aosa (2011) who highlight that the
environmental factors influence the strategic decision making of a firm since the
unpredictability of the macro-environments increases the risk for firms. The popular
framework used to analyze the macro-environment that a business unit operates in is
PESTEL.
The process of analysing the environment in which an organization operate in can be
assisted by using the PESTEL framework which aims studying the macro
environment of organizations to identify how future trends in the political, economic,
social, technological, environmental and legal environments impacts on the on
organizations (López et al., 2016). It appears from this discussion that the PESTEL
analysis could be the first tool to be used to collect data on future opportunities or
threats faced by organizations. The political environment of a home country may have
a direct or indirect influence on an organization business decision. This might be
represented in terms of whether the host country has entered into economic blocks
that might affect a firm activity (Aithal & Shubhrajyotsna Aithal, 2015). The
economic environment as manifested by a country’s per capital income, distribution
of economic wealth and the type of economy that is being practiced in the country
will determine the strategies that a business unit will adopt. On the other hand a
business unit should also analyse social-cultural aspect of the macro-environment that
it operates in during the process of coming up with the strategies that will guide its
future operations. The social-cultural factors to be considered include the country’s
values, beliefs, rules and institutions that are being practiced (Simsek et al. 2007).
The effect of technology on business organizations decisions has become important
due to many anticipated breakthrough technologies (Samaha, Seck,& Palmatier,
2014). Most multinationals gain technical dominance through constant creativity,
study, and growth by reserving a significant part of their annual budget, since
advances in innovation and technology are extremely expensive. The design of an
effective strategy finds both environmental and geographical considerations of
climate, such as landscape and weather conditions, topographical influences, natural
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resources endowments, regional locational dimensions, and airport and water harbour
facilities to be important. There are legitimate environmental factors that have to be
weighed for spending decisions and business activities in the industry (Bohari, Hin &
Fuad, 2017). The legal environment has to be addressed as every sovereign country
has its socio-cultural, political values and beliefs in its legal system. Multinational
companies’ worldwide must navigate varied and sometimes complex legal structures
in their respective countries of operations.
1.1.3 Organizational Performance
Organizational performance is the degree to which an organization attains its mission,
vision and objectives that are measured in terms of quality service, customer
satisfaction and increased profits (Aguinis & Kraiger, 2012). According to Koontz
and Donnell (2010) performance of an organization refers to the capacity of a firm to
realize such mundane goals as high profit, increased market share, new product
development, decent financial outcomes and achieving long-term sustainability.
Naranjo-Valencia, Jiménez-Jiménez and Sanz-Valle, (2016) grouped organizational
performance into the following categories; business performance, financial
performance and organizational effectiveness. Moullin (2007) assert that firm
performance is a means through which a firm provide value to its stakeholders and
therefore is an indication of how well the managers succeed in utilizing firm resources
to generate income to the firm.
Various methods to assess the performance or achievement of a company are used.
Carton (2004) states that an organization's good performance can be measured by the
values it generates for its shareholders. Multiple performance measurements are used
in earlier studies. To evaluate corporate performance, Lumpkin and Dess (1996) used
increase in their revenues, profitability, market share and general performance.
Mokhtar et al. (2014) used four dimensions: success of new product, customer
retention, return on capital and growth in sales in measuring the relationship between
market orientation and corporate performance. In the present research, the balance
score card performance perspective measures will be used. It is a global performance
measurement model that Kaplan and Norton (1992) established and mainly aims to
transform the task and strategy of an organisation into effective measures. The
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perspective measures are namely the firms, financial, internal processes, customer
focus and learning and growth.
1.1.4 Mobile Telecommunication Industry in Kenya
Kenya's mobile telecommunication industry has been modified via Kenya's 1998
Information and Communication Act that led to the creation in February 1999 of the
Communications Commission of Kenya (CCK), which was later rebranded to Kenya
Communication Authority (CA) in 2017. The Communications Authority (CA) is the
accountable agency for designing and executing telecoms policies and strategy in
Kenya and is responsible for authorizing and controlling postal, radio and
telecommunications services in Kenya. CAK also promotes efficient trade, consumer
protection, business promotion and procurement of global transit services and tariff
law enforcement (Ondiege 2015).
The industry has experienced an extensive growth in the number of subscribers as
well as geographic expansion of cellular mobile services in the country (cck.go.ke).
Since inception, mobile penetration in Kenya has grown dramatically and stood at
89% as at 31st March 2019 (International Telecommunication Union, 2019). Kenya
had over 38 million subscribers as at 31st December 2018, with Safaricom enjoying
63.5% market share, followed by Airtel Networks Kenya Limited’s 23.4%, while
Telkom Kenya, under the brand name Orange commanding 13.1% market share.
However, with the anticipated merger of Airtel and Telkom Kenya in the cards, it is
expected that the country is going to continue witnessing increased competition in the
sector which will call upon the players to come up with new business models if they
have to remain competitive (Nyambane, 2017).
1.1.5 Safaricom Kenya Limited
Safaricom is Kenya's top cell phone operator. It was established as an integral part of
Telkom Kenya in 1997. Vodafone Group plc, the world's largest content distribution
company, gained 40 per cent of the organization's interest and leadership
responsibilities in May 2000. The goal of Safaricom is to remain Kenya's top mobile
network operator. Over 1000 delegates were hired from the existing supporter base
and 10 retail shops were established in Nairobi, Mombasa, Kisumu and Nakuru. The
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business has a large trading network with over 152 merchants in the whole country
(www.safaricom.co.ke).
The organization has built up an expansive scope of administrations to address the
issues of the more than 30 million customers. The expanding number of endorsers has
affected the organization's benefit. The organization's turnover ascended from Ksh
38.1 billion for the fiscal year 2015-2016 to Ksh 45.1 billion in 2016-2017 which is
18.3% increase. Safaricom has been on a development binge throughout the previous
five years. In the meantime, the organization has been spending an immense piece of
their pay on corporate social obligation. The organization has a division that deals
with corporate social duty that has been given a considerable amount of cash for
matters inspiration of the lives of the citizens and helping the poor in the general
public (Nyambane, 2017).
Safaricom accepts naturally that the accomplishment for any organization relies upon
how it characterizes its offer. The organization additionally values the system
foundation, innovation and faculty who decide the quality, clarity and consistency of
the administrations advertised (Kisaka et al.,2015). Corporate vision is to be the main
cell phone specialist organization. Safaricom has an assortment of administrations that
it offers to its customers. These incorporate; remote telephone administrations, web
administrations, electronic cash exchanges and mobile phones. The group utilizes a
few advertising combine procedures with division in figuring it out its objectives and
corporate vision.
1.2 Research Problem
In the current business environment that is increasingly becoming competitive,
organizations engaged in both public and private activities are under intense pressure
to pursue operational excellence in order to improve their performance (Schaltegger,
Beckmann, & Hansen, 2013). This implies that these businesses need to come up with
profit oriented models that are not easily imitated and make use of the internal
resources, in their operations to realise the set strategic goals. In addition, Teece
(2010) assert that adoption of an appropriate business model is able to help a firm
perceive and assess changes happening in the environment as well as enhance the
capacity of the firm to taking necessary measures that are in line to the structure of the
8
company. However, Teece further point out that there is need for a firm business
model to be differentiated from competing firms in order to result in higher profits.
The understanding of the relationship between the business models adopted by the
mobile firms and their performance will be necessary to the mobile firms in a
developing country as Kenya.
The mobile telephony industry in Kenya has been undergoing rapid changes over the
last 15 years with the Communications Authority of Kenya having licensed four
mobile operators in Kenya over the same period (Safaricom, Airtel and Essar (Yu)
and Orange), though Essar (Yu) exited the market in 2013, while Orange sold its stake
to Helios Investment Partners in 2015. New licenses were issued to Jamii Telkom
have come into operation. With such a number of mobile operators serving a market
of around 30M Kenyans with mobile phones, the level of competition is high in both
the voice and data service provision (Oteri, Kibet and Ndungu, 2015). The firms need
to need to continuously come up with different business models that meet customer
needs and at the same time differentiate itself from the rest of the players in the
market. This is because coming up with a new service or product is not an end in itself
because it will be imitated very soon rather than later and there is need to always
come up with a business model to be pursued and that will make the mobile phone
firm competitive. However, the effectiveness of the business model differs and
therefore the understanding of how the model adopted will impact on the performance
of the firms will be necessary. Different scholars have sought to investigate the effect
of business models on the firm outcomes.
Brannon and Wiklund (2016) investigated the nexus between business models as
represented by firm characteristics, innovation and performance of Indian and
Chinese textile export firms. The findings have shown that increased customer
knowledge and awareness is associated with business model innovation. The impact
of the business model for Russian Food Service Ventures was explored by Morris,
Shirocova, and Shatalov (2013). The study revealed that restaurant and service for fast
food supplies concentrate on the provision of utilities by reducing production
expenses as it enhances the company's earnings and profits. Simultaneously, Baden-
Fuller and Haefliger (2013) attempted to determine the connection among
telecommunication companies' business models and technological development in
9
Britain and discovered that business models mediate the connection between
technology and company performance. The study also discovered that, the
development of correct technology is a question of choice between an open and user
engagement business model.
Mutisya (2012) has investigated Mombasa business models and established that the
supermarkets of Mombasa have implemented a number of business models and a
variety of factors have affected the model selection. Financing from the banks and
unfriendly public policies have been the main problems of small and medium-sized
supermarkets. Furthermore, the aforesaid did not invest in technology. Latema (2013)
carried out a study of Kenya county governments' business models for generation and
enhancement of revenue. The findings of the study were that counties have provided
public land for entrepreneurs as a revenue generation model. Further, Maina (2013)
researched on the adopted business models by container consignment stations in
Kenya and found out that majority of the freight stations handled a variety of
commodities and most of the freight stations customers were those that the freight
stations had approached for business and they thus did not depend much on KPA
rebates as a source of revenue.
From the above studies, it is evident that different researchers have investigated the
effect of different firm business models on organizational outcomes. However, the
dimensions of business models used are varied as well as the methodology employed
by the researchers. As a result of the existing gap, this research will seek to answer the
following research question; what is the influence of business models, external
environment on the performance of Safaricom Kenya Limited?
1.3 Research Objective
The main purpose of the study was to determine the influence of business models,
external environment on performance of Safaricom Limited in Kenya.
The specific objectives were:
1. To establish the effect of business models on the performance of Safaricom
(K) Limited.
10
2. To determine the influence of external environment on the relationship
between business model and performance of Safaricom (K) Limited
1.4 Value of the Study
The research contributes by recording the existence of the business models
implemented by Safaricom to expand the concept of dynamic capability, resource-
based perspective and contingency theory on mobile communications firms' success
in developing countries. The research theories aimed to explain why companies can
perform the same tasks but have different results.
This study is relevant to management practice in highlighting and providing solutions
to the challenges the firm faces as it develops and adopts business models. By so
doing, the company can implement the measures recommended by this study and thus
have more efficient business model adoption processes. This may translate into higher
institutional profits for the firm. Based on the successful business models identified
by the study, other institutions and companies can adopt these models and as a result,
more institutions might become more profitable and adaptable to the business
environment. The economy of the country might thereby thrive and the government
tax collections increase.
Policymakers might use the study results to identify and bridge gap between existing
business models. The understanding of the effect of business models on the
performance of business organizations might enable policy institutions like the
Communication Authority (CA) come up with incentives that encourage the firms in
identifying appropriate models thereby contributing to CA’s mandate of facilitating
the development of the information and communications sector in Kenya.
11
CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
This chapter presents the theoretical basis of the study, business models and
environment as well as performances, empirical studies and the identification of the
research gap.
2.2 Theoretical Foundation
A theoretical framework can be described as the manner in which the investigator
presents the research questions and think through the subject area, come up with
appropriate ideas and theories that can predict the potential outcome of the research.
After which, the ideas thought and the theories into the research theme that mounts
the subject (Neuman, 2010). As a result of the above description of theoretical
framework, the research came up with the following discussed theories that underpins
the study.
2.2.1 Dynamic Capability Theory
The Dynamic Capability Theory (DCT) was advanced by Teece and Pisano (1994)
and further refined by Teece, Pisano, and Shuen (1997), and Eisenhardt and Martin
(2000). Dynamic skills are internal and external tools that enable an organization to
adapt, develop and re-configure its products and processes to improve its efficiency.
The theory says that companies' capacity differences are based on their asset position
so that their current stock of capabilities determines the future position of a company
in changing its operating situation. In particular, the institutional versatility and
adoptability will be affected by business procedures, including governance structures,
resource allocation mechanisms and effectiveness efficiency. Likewise, a company's
ability to recognise and contribute to the direction of upgrades to skills that lead to a
competitive advantage shall also be measured by a course taken so as to provide an
important resource.
Eisenhardt and Martin (2000) established that dynamic capability view explains the
important role of capabilities to reconfigure resources that a firm has at present to
12
cope with the highly changing environment. Therefore in business environments that
are fast-changing DCT explains the critical place of dynamic capabilities in
explaining an organizations level of competitiveness (Barreto, 2010). This is because,
dynamic capabilities are considered as a transformer for translating resources into
better performance. King and Tucci (2012) established that by incorporating past
practices in previous markets, a firm can raise the chance of succeeding in a fresh
market hunt, and that the capacity to integrate industry technology during product or
service development is an important dynamic capability for new technology-based
organizations.
Amit and Schoemaker (1993) while appreciating the step of re-assembling a firms
external and internal resources in a rapidly changing industrial setting, they also
highlight the need to create a more cost-effective process to other opponents that will
configure and transform their input into tangible output. The reconfiguration
capability is therefore mainly considered to be an essential dynamic capability to
monitor company and technology development environments and to respond
adequately by means of asset conversion. As a consequence of increasing market
uncertainty, the reduction of frontiers between competitive environments and the
progress towards global competition has required companies to be more dynamic in
their actions. This is because of higher expectations of customers. Therefore the
design of approaches that vary between the company and the rivals will become the
principal success driver as Gathungu and Mwangi (2012) opine, as complexities in
market environments increase. Similarly, Zhou and Wu (2010) indicate that strategy
flexibility, incorporating efficient implementation and resource reconfiguration,
reinforces favourable technological capacity impact and thereby improves the general
performance of an organization. Therefore, in dealing with dynamic business
environments, organizations ought to swiftly react to the market and the strategies
applied by competitors.
2.2.2 Resource Based Theory
The Resource-Based View (RBV) is a method used in the 1980s and 1990s, after the
original concept created by Wernerfelt (1984), for achieving an organisational
competitive advantage. Barney (1991) has further developed the theory by pointing
out that a firm mainly consists of a range of capacities and assets that must be paired
13
to generate products or facilities that satisfy the requirements of customers, through
developing suitable organizational policies. Peteraf and Bergen (2003) highlight that
the key drivers of organizational competitiveness will be the quality of its internal
operational resources that are rare, not easily copied by competitors and also should
non- substitutable. Therefore, irrespective of how good a firm’s competitive strategy,
there is need to augment it with an elaborate operation strategy that covers the firm’s
corporate strategy, core competencies, product and service development, competitive
priorities and customer driven strategies (Paiola, Saccani, Perona & Gebauer, 2013).
Accordingly, RBV argues that successful companies can enhance their potential
performance through efficient use, which may be intangible or implied in essence, of
their unique and distinctive abilities. Boyer, Swink and Rosenzweig (2005) highlight,
however, that organizational capabilities on their own will not improve a company
performance but rather the capacity of the organization to combine these internal
capabilities in a manner that will create a synergy and thus improve the organizational
performance. In the context of the current research, the capacity of a firm operational
strategy to adjust its capacity in times of demand increase, establish effective
inventory and control systems, and also institute proper failure prevention and
improvement process is expected to result to improved performance (Slack, Chambers
& Johnston, 2011). This point was emphasised by Swamidass, Darlow and Baines
(2011) who find that effective implementation of a firm operations management lead
to increased product and service delivery speed, reliability, quality and flexibility of
offerings. These outcomes are courtesy of the operations strategy implemented by the
organization.
2.2.3 Contingency Theory
Contingency Theory states that a company's future orientation is shaped by the
executives, environment, and institutional factors. Contingency theory assumes that
managers' ability to influence organizational results is limited by environmental
considerations and organizational factors (Carpenter and Golden 2007). The people in
the organization, their leadership and movement are included in the human
subsystem. Where ambiguity is linked to the mathematical ideas of probability and
fluidity or proposals of limited rationality, there are two solutions to ambiguity similar
to each other, because the more data the organisation needs in order to accomplish or
14
carry out and finish its mission, the higher is the degree of knowledge of the
organisation (Nobre et al., 2009).
The contingency theory supposes that every subsystem is suitable for a number of
differences. Each of them should be designed to correspond to other subsystems and
the environment in which they are (Mentzer, 2001). The innovation employed in the
organisation will also influence subsystems and the organisational composition. The
concept of contingency also depends on an open system perspective, which considers
the organisation to be more environmentally responsive. The performance of the
marketing strategy determines whether or not the company survives and is determined
by how the firm manages its relationship with the environment. The theory proposes
that a leaner organizational structure and lower bureaucracy enhance flexibility and
enable fitting between internal processes and the environment.
2.3 Business Models and Firm Performance
Often, business models are used to analyse and understand existing business logic of a
company. As a result, many experts have tried to define business models with the aim
of developing a popular dimension of the business model. Business model is regarded
as an intermediate element between the approach of a company and its business
processes, and while business models concentrate on the manner in which they
operate in a sustainable enterprise, they represent the logic of creating value and
effectively co-ordinating resources of a company (Osterwalder et al. 2005). However,
according to Rappa (2014) while quoting earlier researchers (McGrath & MacMillan
2000; Day & Moorman, 2010) assert that the more commonly agreed dimensions of
business models include customer engagement, customers identification, monetization
and linkages and value chain.
Customer identification dimension focuses on determining the destination client by
contrasting the present and anticipated condition with the issue they are facing
(Ulwick, 2005). Identification of customers indicates whether users are paying for
obtained facilities or whether there is another set of clients paying for facilities when
the key service is offered free of charge (Teece, 2010). By identifying the correct set
of customers consuming the firm’s products or services, then the firm will be able to
come up with targeted products which will enhance its revenues and market share.
15
The monetization dimension is concerned with the financial considerations of the
business by coming up with ways of making money for the business. This is achieved
by controlling costs and raising revenues through adoption of the economies of scale
(Kaplan & Norton, 2004). Non-financial factors concerning cultural and
environmental issues (the triple bottom line) may also apply to economics. The
business model of customer commitment stresses the need to formulate the value
proposition from the perspective of each customer (Day & Moorman, 2010). This
involves the determination of what the customer or customer groups require and the
evaluation of the value proposition in the individual customer group.
Mitchell and Coles (2014) argues that the business model of a corporation is supposed
to explain how it produces or receives profits by showing the current revenue
generators or different cost components to which the company charges and which
aspects of the price structure of the firm are to be paid. At any point the financial or
competitive framework of a product must be addressed, taking into account sales
factors, profitability and production costs and the overall cost structure of the business
(Morris et al. 2016). Moreover, business models in firms must change over time and
be able to adapt to current market demands for efficient generation of revenue (Teece
2007). It illustrates the need to respond to changing markets and to find or develop
new skills, to bring about improvements to business models and priorities. Thus, the
frequent change by companies on their business models exemplifies the need to align
itself with the changing business environment that it is operating in.
Roh (2012) stresses that the development of an organization differs according to how
sales levels and scale of activities are extended. This is because increased levels of
business lead to proportional increases in purchase volumes and the strength of the
company's market, allowing the company to increase its value share within the value
chain. The chosen development path will be linked to a whole range of decisions that
primarily deal with the general growth and growth of funding sources. Decide
whether the business should expand solely under its own auspices or through
collaboration between itself and others through franchising, collaborations, strategic
alliances, joint ventures, licensing etc. (Peng & Heath 2006), is a decision to
determine the type of growth.
16
2.4 Business Models, External Environment and Performance
The effectiveness of a firm business model in influencing the final outcome is
dependent upon environmental factors. The business environment in which an
organization operates affects the type of business strategy and dimension of value
proposition taken to address the client issue often in light of the offer and its possible
advantages. Most industries have the traditional concept of a value chain in which a
company takes a specific position to receive the suppliers' raw material, create the
product and present it to its company’s’ respective customers (Stabell & Fjeldstad,
2008). The relationship between the suppliers and the firm will determine the nature
of the relationship developed and how the firm adapts its business models to meeting
customer demands.
An organization innovation product and process innovation need to be aligned to the
prevailing market condition with a view developing the business model that is able to
match the customer needs (Visnjic, Wiengarten & Neely, 2016). Business entities
need to deploy servitization and product innovation together, as well as identify which
business model is appropriate to its business structure. Consistent with Gebauer
(2011), the finding reveal that when both innovation and servitization are employed
together, both result in improvement in performance for the following year while,
jointly employed, the outcome reduces the extent at which the performance of the
following fiscal year is achieved.
By interacting with clients to solve particular problems or by adding value through the
production of "one-sized-all" goods and services by standardized mass-production
processes, an organization can create value to its customers (Day, 2013). Similarly,
through engagement of its customers, a business unit will be able to develop customer
centred products which is able to meet their own unique needs with differentiating
feature with other competing firms in the market. Different studies have shown that
the business models of entrepreneurs and incumbents seem to converge with the
common objective of providing multipurpose economic drivers. However, the study
was not able to explain the business models appropriate for a particular sector in the
different levels of development ( Bohnsack, Pinkse & Kolk, 2014).
17
2.5 Summary of Empirical Studies and Knowledge Gaps
Different studies have been undertaken at both the international, regional and locally
on effect of business models in organizations. The studies have zeroed on the effect of
business models at different sectors that include fast food consumer firms, small and
medium enterprises, power firms and the higher educational sectors. The studies have
adopted different research designs ranging from desktop analysis, case study and
descriptive cross-section research design. However, the present research differs from
the current research in that the studies did not consider the moderating effect of the
environment to the relationship between business models and performance of firms.
In addition, the competitive nature of the telecommunication industry makes the
current research differentiated. A summary of the empirical studies and knowledge
gap is presented in Table 2.1.
18
Table 2.1: Summary of Empirical Studies and Knowledge Gaps
Study Methodology Key Results Knowledge gaps Focus of this case study
Business Model and company
Performance (Sahut, Hikkerova, &
Khalfallah, 2013).
Desktop
analysis
It was discovered that the business
model explains firms' performance
more efficiently than industrial
ranking
The research was not able
to factor the moderating
effect of external
environment on the
relationship
The current study considers the
moderating variable of the environment
in affecting the business models
Business Model and organizational
Performance, a case of Food Service
Ventures in Russia
(Morris, Shirokova & Shatalov,
2013).
Descriptive
cross-
sectional
research
Successful implementation of
integration business model allow
companies to establish higher mark-
ups, higher return on sales, high ROE
and profit.
The industry that the
research covered was less
technologically oriented
like the present research
study
The telecommunication industry in a
developing country as Kenya faces
unique challenges in as far as business
model development and this makes a
point of deviation from the study.
Business models for sustainable
innovations: Discovering evolution
of business models in the case of
electrically powered vehicles;
(Bohnsack, Pinkse & Kolk, 2014).
Case study The evolution of the business model
shows a sequence of rapidly increasing
changes that bring components which
are service-oriented to the product
initially developed by entrepreneurial
companies.
The external environment
moderating variable was
not incorporated in the
model
The current study considers the
environmental conditions and not
innovation alone
Business models: A challenging
agenda (Baden-Fuller &
Mangematin, 2013).
Causal
Research
The link of technology and corporate
performance is mediated by business
models. The development of a suitable
innovative technique is a question of a
business model choice on user
involvement and openness.
The study adopted
different measures of
business model unlike the
current research.
The current study will restrict itself to
four different dimensions of business
models unlike the study under review
Diagnosing an organization's
internal setting for corporate
entrepreneurship (Kuratko, Hornsby
& Covin, 2014).
Exploratory
and
confirmatory
factor
Analysis
Managers and staff in organisations,
when organisational conduct is shared
and recognized among staff, are
inclined to participate in
entrepreneurial conduct
The current study will
employ a descriptive
research design and scope
will zero in on technology
based firms
The current study will consider an
emerging economy and more so how a
firm business model affect performance
19
2.6 Conceptual Framework
A conceptual framework can be described as wide concepts and values derived from
appropriate research areas and used for subsequent presentation structure (Reichel &
Ramey, 1987). From the review of literature, it is depicted that the environment
influence mediates the relationship between business models and performance of
organizations. This relationship is presented in Figure 2.1.
Figure 2.1: Conceptual Model
Source: Researcher (2019)
Figure 2.1 it shows that the external environment variables such as the political state,
economic, social, technological advancement as well as environmental condition
affect a firm’s business models adoption. The study postulates that Safaricom
business model such as core internal competence, revenue drivers and pricing, volume
sales and market differentiation is affected by the state of the economy in the country,
political stability is expected to affect how these business models are successfully
implemented and consequently affects the firm performance.
Safaricom Business Models
• Core internal competencies
• Revenue drivers and pricing
• Volume and Margins
• Market differentiation
Firm’s Performance
• Financial
• ROI
• ROA
• Net Profit
• Non-Financial
• Customer satisfaction
• Employee satisfaction
• Social performance
• Environmental performance
External Environment
• Political
• Economic
• Social
• Technological
• Environmental
• Legal
20
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction
This chapter presents the research methodology adopted in the study with the aim of
achieving the objectives of the study. The areas covered include, research design,
target population, procedures for data collection and analysis of data.
3.2 Research Design
The study adopted a case study research design. A case study is an in-depth study of a
person, institution or phenomenon. A case study was adopted because the research
subject matter that involves the investigation of how business models, external
environment affect performance of Safaricom (K) Ltd, might be known by a few
number of the top management of the organization. In this regard, it becomes
imperative that the researcher employs a case study approach whereby a select
number of the top management team was interviewed. Therefore, the case study
research design was considered the best way to meet the study's goal.
3.3 Data Collection
The researcher utilized an interview guide as the main data collection instrument.
Data was collected through a face to face interview with the interviewees. The target
interviewees were the Safaricom (K) Ltd staff who are involved in strategy
development and implementation. In particular, the targeted interviewed managers in
the Corporate Services, Product development, Marketing, Financial Services and
Enterprise Business departments.
The interview guide was made up of three sections. Section A was information
concerned with the respondents’ demographic profile, section B covered the
Safaricom business models, section C contained questions on the effect of business
models on Safaricom performance while section D were questions on the effect of
business models, external environment on the performance of Safaricom (K) Ltd. The
targeted interviewees were considered to be knowledgeable on the company business
model strategies and how it influences their level of performance. In addition these
21
groups of interviewees are either involved in the development or implementation of
the company strategies.
3.4 Data Analysis
The study adopted content analysis to obtain analytical results from the interview
guide. Content analysis provides general perception on relationships among variables
of study. In addition, content analysis is considered appropriate for this study since it
is able to give appropriate description, interpretation as well as provide significant
critic to the research topic because it may not be easy to do it numerically. Content
analysis comprises of detailed description and observation of items, objects, or
elements that is associated with the objective of study.
22
CHAPTER FOUR
DATA ANALYSIS, RESULTS AND DISCUSSION
4.1 Introduction
The analysis purpose was to evaluate the impact of business models, an external
setting on the performance of Safaricom limited in Kenya. Through the interview
guide the data was collected. This section analyses and addresses the observations of
interviewees.
4.2 Response Rate
The researcher targeted to interview respondents from the following departments;
Corporate services, Enterprise Business, Product development, marketing and
Financial Services. During the data collection process, the researcher was able to
interview seven of the targeted interviewees. This represented a response rate of 70
percent, a position that was deemed to be adequate in the quest to realise the research
objective.
In terms of the interviewee’s background, the areas covered include current position,
the length of time that they had been working in the current position and the highest
academic and highest qualification. In relation to the interviewees work experience, it
was found that they had worked for a period ranging between 5-10 years in
Safaricom. The study also found that majority of the interviewees (5) had worked for
Safaricom limited for over five years. On other hand the interviewees highest
academic and highest qualification varied with majority of them holding Master
education level in diverse fields ranging from business courses, engineering,
information technology, marketing and human resource management. In addition, all
the interviewees had different professional qualification in their professional line of
operations. With such academic and professional qualifications, the interviewees were
deemed to be capable to analyse and critically identify and respond appropriately to
the research questions.
4.3.1 Business Models Adopted by Safaricom
The first section of the interview guide sought to determine the customer
identification process that have been adopted by Safaricom limited. The interviewees
23
noted that customer identification process is through identifying customers from
market analysis, demand of products, other interviewees said it can be done through
customer request, mass market demand for services and customers looking for
services through market research. The questions asked on the customer engagement
approach shows that the interviewees response was by identifying different category
of customers and their needs, market research to respond to customer demands and
profiling, probing customers and identifying trends.
In regard to the value chain and linkages business model approach interviewee No 2
noted that the Safaricom limited likes setting up the right network infrastructure e.g.
Fibre Optic Network, Base Stations etc and setups up services on top of this
infrastructure. Consequently, the interviewee No 4 also said that:
‘the value chain and linkages business model approach take through online shop,
channel partners (i.e. agents), Safaricom shops etc and we work with distributors to
sell our products countrywide’
The findings revealed on how value is created in Safaricom Limited which is through
innovative products after research and conducting needs of customers. Additionally,
Innovation department and idea commercial sections that tests market viability of the
products were mentioned in the creation of the value. Further, the account manager
said;
‘The creation of value in Safaricom is through market research, constant engagement
with customers, responding to market demand. We deliver value by satisfying the
customer needs’
The other point that came out from the research was that the core internal
competencies in Safaricom limited were very good engineers, HR practitioners,
technology, logistics business development teams and the company had qualified staff
with technical & sales competence. It was noted that interviewees No2 stated that
innovation teams, best marketing team, commercial organization, HR talent
identification process.
The researcher also sought to establish how the company’s revenue drivers and
pricing approach is structured. The interviewee noted that the pricing is structured
24
based on market niche and target customers while interviewee No 3 stated that it
through competitor benchmarking, tax regimes, regulatory guidelines e.g. competition
authority, and growth strategy. In addition, interviewee No. 5 stated that revenues are
driven by voice, data and mobile money services. . Pricing is based on a combination
of factors, including cost, and competition. In regard to the source of the company
product differentiation the interviewee stated that it through infrastructure expansion,
presence of service is widely available, improve quality, product offerings/bundle
structure. Similarly, interviewee No. 3 noted that the sources can be found though
packaging, promotion, targeting different social groups and timings
The company growth model structure was mentioned by one of the interviewees as
the constant effort to expand and modernize the network infrastructure thereby
expanding capacity and availability for customers to access services and new product
innovations.
4.3.2 External Environment Consideration
The existence of political environment in the country as well as a business model
strategies influences the business and Safaricom limited is always alive to the
potential impact. e.g, during 2013 elections, Safaricom services were impacted from
the oppositions’ call to boycott Safaricom products, hence low usage of the services.
Similarly, the interviewee No 4 stated that the critical services can affect the country
and poor management is influenced from political environment. On the question of
how the prevailing economic environment existing in the country is factored in the
business models strategies, it was noted that different business strategies are adopted
based on forecasted economic conditions on yearly basis, e.g. changes in tax regime,
target revenues and competitor price reductions.
The social and technological condition in Safaricom business models strategies found
that the new products are tailored to suit the needs of a particular social group. For
example the Blaze product is based on a youth empowerment program with its main
target to be customers under the age of 26 years. This is in line with social impact the
company aims to achieve through the programs mentorship, networking and skill
management to the targeted subscribers. Interviewee No 3 stated that technological
advancements impact new product strategies, e.g. evolution of network technology
25
from 2G to 4G means more demand on data usage hence different business strategies
are adopted to utilize the new technologies.
In regard to the environmental and legal environment in the country affect the
business model adopted by the company shows that the company is environmentally
responsible, obligated to cut down carbon emission and usage of sustainable energy,
business strategies are adjusted to be in line with these objectives. Some of these
environmental and legal environment noted by the interviewee No 5 said that;
‘Safaricom is obligated to cut down on carbon emission and energy usage, products
and services are developed in consideration of this. E-waste management determines
how e.g. Phone disposals are done, usage on natural resources e.g water is monitored
to avoid wastage’
4.3.3 Effect of Business Model, External environment on the
Performance of Safaricom
The researcher sought to determine how Safaricom scans the environment and
respond to specific opportunities and threats to come up with appropriate business
model. The results shows that Safaricom uses market research, industry surveys,
customer feedbacks, engagements etc on an ongoing process. Similarly, interviewee
No 1 stated that most of them use the market surveys, research customer feedback,
social media trends, customer feedback and new products adoption.
The areas investigated were in relation to how Safaricom react to changes in the
external environment in terms of strategy to match the prevailing turbulence in the
business environment. The external environment were through adopting to customer
demands and requirements based on market reaction, products are either ramped
down or ramped up. The study found that the competitor actions changed over the last
five years and changed Safaricom limited business models through establishment of
new products e.g. unlimited data plans and diversification from core products to
increase customer base.
The effect of regulatory factor in Safaricom limited on the performance through
change of the firm’s business models indicated introduction of new taxes by
government and introduction of non-transparent issuance of licenses. On other hand
26
customer behaviour also contributed to the influence on performance through creation
and offering new products suitable for products e,g. Sambaza, reverse call, Okoa
Jahazi, Blaze etc. The results revealed that some of the product were not launched to
be pushed to the market but are launched to create an experience with target market.
The researcher also sought to establish the bargaining power of the public at large
affected the performance of Safaricom. The finding indicated that the performance is
impacted when there's negative perception of the new products, mainly, public
bargaining power is low. Additionally, the bargaining power of suppliers affected the
performance of the Safaricom. One of the interviewee stated that;
‘Suppliers of e.g. radio equipment overcharge on their products as the few suppliers
exist in the market with these products’
The organization business development process in the Safaricom limited indicated a
positive effect on performance through all products have to be tested and Safaricom
success has been attributed to continuous business development. The study also
revealed that the growth has been going up, all products have had very good uptake.
Therefore performance has improved from new products.
4.4 Discussion of the Results
The main objective of the research was to determine the effect of business models,
external environment on the performance of Safaricom limited in Kenya. Business
model is a set of linked activities that interwork as a system that a company conducts
to satisfy the needs of a market by building and providing the consumers with quality
goods and services. The external environment, on the other hand, contains all external
factors or pressures impacting business operations.
Findings on the specific objectives of the research were as follows:
Objective One: To establish the effect of business models on the performance of
Safaricom (K) Limited: The key business model components discussed were
customer identification, value chain linkage, customer engagement and pricing. In
regard to customer identification, the findings were that the customer identification
process is through identifying customers from market analysis, demand of products,
customer request, mass market demand for services and customers looking for
27
services through market research. Identifying the customers enabled Safaricom to
build their customer base and this contributes to more revenues to the company. Teece
(2010) states that by identifying the right set of customers consuming the firm’s
products or services, the firm will be able to come up with targeted products which
will enhance its revenues and market share.
The study findings also established that through value chain linkages, Safaricom
Company has established an innovative department that counterchecks the products
viability thus enhancing value creation. Safaricom has also setup up a large network
of channel partners, distributors and shops covering a vast area of the country to
ensure vast reachability of the company’s products and services. The establishment
of effective value chain across the firm distribution network has been found to
enhance the firm competitiveness in the market due to improved customer loyalty to
the products despite the increased level players. The importance of maintaining an
efficient value chain for a firm competitive advantage is in line with Porter (1985)
findings that reinforced the importance a firm distribution network.
The results of this indicated that Safaricom pricing method is structured based on
market niche and target customers. It entails competitor benchmarking, tax regimes,
regulatory guidelines competition authority and growth strategy. The study found that
revenues are driven by voice, data and mobile money services. As asserted by
Mitchell and Coles (2014) a firm’s model of conducting business should explain how
a company generates income or earns money by identifying existing income drivers
and various value elements, and the components of the pricing structure of the
company. Meehan, Simoneeto, Montan & Goodin (1984) argue that if a firm sets its
pricing structure and uses it effectively, it may increase its profit margin and sustain
their profitability in the long term.
Objective Two: To determine the influence of external environment on the
relationship between business model and performance of Safaricom (K)
Limited: The findings of the study reveal that the business model and external
environment adopted by the company has positive impact on the performance. It was
found that Safaricom limited reacts to changes in the external environment in terms of
strategy to match the prevailing turbulence in the business environment. The external
28
environment was through adopting to customer demands and requirements based on
market reaction of their products. Further, it was found that the company adopted
business models from market surveys, research customer feedback, social media
trends, customer feedback and new products adoption.
According to Visnjic, Wiengarten & Neely, (2016) an organization innovation
product and process innovation need to be aligned to the prevailing market condition
with a view of developing the business model that is able to match the customer
needs. The finding revealed that competitor actions changed over the last five years
and changed Safaricom Limited’s business models through establishment of new
products e.g. platinum tariff, Giga data products and diversification from core
products to increase its customer base.
The effect of technology on business organizations decisions has become important
due to many anticipated breakthrough technologies (Samaha, S eck,& Palmatier,
2014). The study found that the new products are aligned based on latest technologies
to cut costs and remain relevant to the existing changes in technology. Further, the
study revealed that Safaricom considers their social responsibility as an important
aspect of their business performance and are hence involved extensively in social
responsibility programs.
On political environment, the study found that the services Safaricom provide are
critical and can affect the country, strategies to manage the impact of political
situations are adopted to mitigate the impact on the performance of the company.
Further, the study established that economic environment existing in the country
determines Safaricom Limited business models strategies. Different business
strategies are adopted based on forecasted economic conditions on yearly basis, tax
regime and cost drivers. As Barney (1991) states, companies acquire a sustainable
competitive advantage through the implementation of policies that leverage their
internal strengths by reacting to economic possibilities, enhancing internal
weaknesses and eliminating external risks.
29
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Introduction
The findings, the interpretation and the suggestions resulting out of the research
assumptions are summarised in this section.
5.2 Summary
The objective of the study was to establish the effect of business models, external
environment on the performance of Safaricom limited in Kenya. With precision and
inclination towards the achievement of the study objective, the researcher aimed at
obtaining significant information from employees working in specific departments
within the organization which comprised of; corporate services, enterprise business,
product development, marketing, financial services and enterprise business. With
reference to the study findings on the length of experience in the respective fields and
the highest level of education acquired by the respondents, it was deemed suitable for
appropriate response and consequently reliable findings.
From the findings, it was found that the process of customer identification is achieved
through specific process for instance demand of products and market analysis,
whereas in some instance, the process is achieved through customer request, mass
market demand for services and market research by customers while looking for
services. Similarly, the study findings established that through value chain linkages,
Safaricom limited company has established an innovative department that
counterchecks the products viability thus enhancing value creation. With regard to
external environment consideration, the study findings reveal that the company faces
a myriad of challenges resulting from opposition arm of the government calling for
boycott of services by their customers. This however has led to reduction of service
uptake by the company’s customers. Additionally, the emergence of new technologies
in the market has enhanced the company’s reaction to change since products and
services are aligned to meet customers’ needs with the prevailing technological
conditions.
30
Further, the findings revealed that business model and external environment have
impacted performance of Safaricom Company significantly. With this respect, it was
established that in reacting to changes in the external environment, the company has
devoted resources towards research and development in order to identify effective
innovative ways of service delivery. In addition, industry surveys, customer feedbacks
and engagements were also mentioned as factors that have improved the ability of the
company to react to change. The findings further reveal that government policy,
which falls under external environment factors has been a challenge in the
performance of the organization. Introduction of inappropriate taxes has reduced
profitability of the company hence reducing performance in the long run. However,
the company has devised ways to enhance entry of new products into the market
resulting to continuous business development and growth.
5.3 Conclusion
From the summary discussion of the findings, the study can conclude that Safaricom
limited has enhanced ways of reacting to technological changes as well as business
models that has improved operationalization of organizational activities. The study
established that customer identification process is done in various ways. With this
respect, the study conclude that Safaricom Company limited achieves customer
identification process through market analysis, demand of products, customer request,
mass market demand for services and market search. In addition, the company has
enhanced value creation through value chain linkages thus improving organizational
capacity of service delivery. Research and development in the company has been
given priority to enhance innovation and value creation.
The company has also enhanced research and development process that improves
market adaptation capability of the organization. As a result of technological changes,
the company has devised effective ways to react to the prevailing technological trends
through appropriate alignment of the company’s products and services to the needs
and preference of the customers. Additionally, the study concludes that apart from
technological perspective as an external factor affecting performance, irregular
government policies have become a setback in service provision. Introduction of hefty
taxes and restricting legal framework has reduced the profit maximization capacity of
the organization.
31
With regard to the impact of external environment and business model on
performance, the study found that these variables have a positive and negative impact
on the performance of the company. The study found that the organization does this
through customer feedback, in order to respond to shifts in the external environment.
Competition in the sector has led to introduction of new products and services to
remain competitive in service delivery. Business development as a result of
introduction of new products and services has led to positive effect on organizational
performance.
5.4 Recommendations
The study found that customer identification process is done through customer
request, mass market demand for services and market research by customers.
Therefore, the study recommends that resources should be devoted generously
towards market research and appropriate customer database should be established to
capture the statistics of customer demands so that the company can have the trend of
services that are highly demanded and consequently enhance value creation in the
respective service line. Additionally, the study found that the value chain linkages in
the company has led to the establishment of an innovative department that
counterchecks the products viability thus enhancing value creation. Product viability
is crucial in satisfying customer needs and therefore the study recommends that value
chain linkage in the organization should be enhanced to improve customer satisfaction
through product viability.
With regard to technological changes, the study established that new products in the
company are aligned based on latest technologies to cut costs and remain relevant to
the existing changes in technology. In this dimension, it is perhaps recommended that
market research, enhanced customer feedback path and effective research and
development should be established in the company to enhance customer satisfaction
and in the long run, performance of the company will improve significantly. Market
survey should be done regularly to detect the need and demands of the market thus
enhancing market information. Furthermore, the company should align service
provision towards the recommendations of the government policies to avoid hefty
taxes while there are equivalent services that can be provided with low taxation.
32
5.5 Limitations of the Study
The present study was limited in scope, covering just a single telecommunications
company that was the main weakness of this report. Which indicates the findings are
not universal hence cannot be generalized in all sectors of economy. The study has
also used a case study design and various inferential techniques must be utilized in
order to validate the results further. This study was also limited by other factors in that
some interviewees may have been biased or dishonest in their answers considering
that they were all commenting on their employer or organization that they have
interest in. Additional participants would have been critical to improving the
representation and accuracy tests on the information given in this report. But the
results reported in this article, given the above limitations, have important policy
consequences.
5.6 Areas Suggested for Further Research
The study was done in relation to one organization. It will be necessary to investigate
more than one company that operates in the country and within the region with
different products to find out whether the effects of business model and external
environment on performance is the same or differs. Similarly, a study may need to be
carried out based on a firm from the western world whose business doctrine is
different to facilitate comparison with the present study.
The research employed a case study research design and it is necessary to augment the
results with research findings when different methodology is employed, such as a
factor analysis to determine the variables to dominate the decisions to use a particular
business model and adopt effective strategies to improve organizational capacity of
reacting to changes in external environment.
33
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APPENDIXES
Appendix I: Letter of Introduction
Evans Kwambai
P.O Box 46834 - 00100
Nairobi
Dear Respondent,
REQUEST FOR AND INTERVIEW FOR RESEARCH PURPOSES:
This is to request you for an interview session for research purposes I aim to
undertake in your organization.
The focus of the study is on the effect of business modes and environment on the
performance of Safaricom (K) Limited. The submitted data will be handled with the
utmost confidentiality and shall be used for academic purposes only.
Enclosed please find the interview guide that I shall be seeking your feedback on.
Your kind assistance is appreciated.
With kind regards,
Evanskwambai ……………………………
Evans Kwambai
Encl. Interview Guide
37
Appendix II: Interview Guide
This interview guide is designed to gather information on the effect of business
models, external environment on the performance of Safaricom (K) Ltd and is purely
for academic purposes only.
Section A: Background Information
1. What is your current position?
2. For how long have you held the current position?
3. What is your highest academic and professional qualification?
Section B: Business Models Adopted by Safaricom
3. What form does your customer identification process take?
..........................................................................................................................................
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4. How does your customer engagement approach take?
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5. Explain how the value chain and linkages business model approach take
..........................................................................................................................................
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6. Where and how is value created in your organization?
38
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7. What core internal competencies are available in your organization?
..........................................................................................................................................
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8. How is the company’s revenue drivers and pricing approach structured?
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9. What is the source of the company product differentiation?
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10. How is the company growth model structured?
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Section C: External Environment Consideration
11. How do you factor the political environment existing in the country in your
business models strategies?
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12. How do you factor the prevailing economic environment existing in the country in
your business models strategies?
39
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13. How do you factor the prevailing social and technological condition in the country
your business models strategies?
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14. How does the environmental and legal environment in the country affect the
business model adopted by the company?
..........................................................................................................................................
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Section D: Effect of Business Model, External environment on the Performance
of Safaricom
15. How does Safaricom scan the environment and respond to specific opportunities
and threats to come up with appropriate business model?
16. How does Safaricom react to changes in the external environment in terms of
strategy to match the prevailing turbulence in the business environment
17. How has your competitor actions changed over the last five years and changed
your business models?
18. How has the regulatory factors affected your performance through change of the
firm’s business models?
19. How has the customer behaviour affected your organization performance?
20. How has the bargaining power of the public at large affected the performance of
Safaricom?
40
21. How has the bargaining power of suppliers as a whole changed and affected the
performance of the Safaricom?
22. How has the organization business development process affect the performance
of Safaricom?
41
Appendix III: Introduction letter for data collection, Dean School of
Business, University of Nairobi.
42
Appendix IV: Safaricom Kenya Limited Organizational Chart